In recent days, USD/JPY extended last week gains and broke above short-term resistance area, which triggered an increase to the Fibonacci retracement. Will it manage to stop currency bulls in the coming days?

In our opinion the following forex trading positions are justified - summary:

• EUR/USD: short (a stop-loss order at 1.2250; the initial downside target at 1.1466)
• GBP/USD: none
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Looking at the daily chart, we see that although EUR/USD increased a bit earlier today, the overall situation hasn’t changed much because the exchange rate is still trading under the upper border of the brown rising trend channel. This means that even if the pair extends today’s upswing it could be nothing more than another verification of the earlier breakdown. This scenario is also reinforced by the situation in the long term.

As you see on the monthly chart, EUR/USD remains in the orange resistance zone – below the 2010 and July 2012 lows (in terms of monthly closing prices), which suggests that the 2017 upward move could be a verification of the earlier breakdown below these levels. This scenario is also reinforced by the current position of the long-term indicators – they increased to the highest levels since April 2014. Back then, such high readings of the CCI and Stochastic Oscillator preceded bigger move to the downside, which suggests that we may see a similar price action in the coming week(s). Therefore, even if EUR/USD moves a bit higher in the very short term, we believe that another significant move will be to the downside.

Very short-term outlook: mixed with bearish bias
Short-term outlook: bearish
MT outlook: bearish
LT outlook: mixed

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1466) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/JPY

From today’s point of view, we see that USD/JPY broke above the yellow resistance zone for the first time since July, which triggered further improvement and a climb to the next resistance area (marked with the yellow ellipse) created by the red declining resistance line and the 61.8% Fibonacci retracement.

What’s next for the exchange rate? Taking into account the above-mentioned resistance zone and the current position of the daily indicators (the CCI and the Stochastic Oscillator are overbought and close to generating sell signals), we think that reversal and a pullback should not surprise us in the coming days. If this is the case and the pair moves lower, the initial downside target will be around 109.90, where the previously-broken long-term green support line currently is.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

AUD/USD

On the medium-term chart, we see that the orange resistance zone stopped currency bulls, triggering a pullback in the previous week. In recent days, AUD/USD re-tested this major resistance, but we didn’t see any improvement, which suggests that another move could be to the downside.

Will the very short-term chart confirm this scenario? Let’s check.

The first thing that catches the eye on the daily chart is a breakdown under the lower border of the purple rising trend channel. Although we saw a tiny breakdown at the end of August, currency bulls were strong enough to invalidate it very quickly. This time, the exchange rate closed yesterday session below this line, which is a bearish development. Earlier today, AUD/USD rebounded and climbed to the lower line of trend channel, but as long as there is no invalidation of this breakdown further deterioration is more likely than not. Therefore, if today’s move is just a verification of Monday breakdown, we’ll see a reversal later in the day (or tomorrow) and lower values of the exchange rate.

How low could the pair go? In our opinion, if AUD/USD declines from current levels, the initial downside target will be around 0.7805-0.7820, where the green support zone (created by the mid-August lows and the 38.2% Fibonacci retracement) is.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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